The Different Types of Mortgages Explained

Mortgage Advice Covering The Different Types of Mortgages

Whether you happen to be a First Time Buyer in Halifax hoping to find your footing on the property ladder, or you are currently Moving House in Halifax, it will become apparent soon enough that there are many different types of mortgages for customers to utilise.

There will be some options that are more popular than others, whilst some may be less common to come across. We have put together a comprehensive list of the different mortgage types we come across the most.

You can watch many more Helpful Mortgage Guides on moneymanTV here or go directly to our “Mortgages Explained” YouTube playlist here.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage allows for a customer to keep their mortgage payments consistent for a that your mortgage payments are going to remain consistent for a chosen period of time.

You have full control over the length of time in which you can fix your payments for, with people typically choosing 2, 3 or 5 year fixed rates, though possibly longer.

Regardless of any changes to the economy, inflation or interest rates, you can stay comfortable in your home knowing that your mortgage, arguably your biggest ever financial commitments, will stay the same for your fixed period.

What is a Fixed-Rate Mortgage? | MoneymanTV

What is a Tracker Mortgage?

A tracker mortgage is where the interest-rate of your mortgage will follow along with the Bank of England’s base rate.

To simplify this for you, the mortgage lender that you end up with will not be the one to choose your interest-rate, and you won’t be deciding that either.

Instead, the interest-rate on your mortgage will be set at a percentage above the Bank of England base rate. For example, if the base rate is 1% and your mortgage is tracking at 1% above base rate, you will be paying a rate of 2%.

What is a Tracker Mortgage? | MoneymanTV

What is a Repayment Mortgage?

A repayment mortgage is the standard type of mortgage you will come across, paying back both a combination of interest and capital each month.

So long as you continue paying your mortgage per month, for the duration of your mortgage term, you will be guaranteed to have paid off your mortgage balance in full by the end of your term, owning the property.

This is all considered to be the most risk-free way to pay back the capital on your mortgage balance. In the early stages of your mortgage term, you’ll mainly be paying back the interest, with your balance reducing slowly, especially with a 25-30 year term.

Your mortgage will alter slightly towards the last ten years or so, as you will be paying off much more capital from your balance than you will be with interest, meaning your balance will come down a lot quicker.

What is Repayment Mortgage? | MoneymanTV

What is an Interest-Only Mortgage?

Though you will see a lot of modern buy-to-let mortgages being set up as interest-only mortgages, it is a lot more difficult to obtain a residential interest-only mortgage.

It is not entirely impossible, though it is a lot harder to find these, as mortgage lenders may not offer these to customers.

They do become helpful though in relevant situations, such as potentially downsizing when you are only, or if you have external investments you can use to pay back the capital on the mortgage.

There are much stricter rules with interest-only mortgage products these days, with the loan-to-values on these being much lower than they would be in the past.

What is an Interest-Only Mortgage? | MoneymanTV

What is an Offset Mortgage?

By taking out an offset mortgage, your mortgage lender will be assigning a savings account to you, to run alongside your mortgage term.

The way that this works is that if you were to have a mortgage balance of £100,000 and £20,000 is deposited into your savings account, you would only be paying interest on the difference between that, which would be £80,000.

This is often considered to be a very efficient way of managing your money, especially if you are paying higher rates of tax.

What is an Offset Mortgage? | MoneymanTV

How Much Deposit Do I Need To Buy A House in Halifax?

Deposit Mortgage Advice in Halifax

The amount of deposit you will need for a property and the process of what you are trying to do, will be completely dictated by your own personal circumstances.

Here we explore how much deposit may be required for you and your situation.

Why do I need a deposit for a mortgage in Halifax?

In the past, it was quite common to come across 100% mortgages. Before they were nationalised, even Northern Rock was offering 125% loan-to-value mortgages.

What that means, is if you were buying a property valued at £100,000 they would lend you up to £125,000, and yet they were shocked when everything went wrong.

The reason that lenders require you to provide a deposit, is to reduce their lending risk. If they lend you 100% of the purchase price and you end up in any kind of debt, they would then have to take possession of the property. All it takes then is for house prices to change, for them to be at a loss, which of course they don’t like.

There is also a perception that if you haven’t invested some of your own or your family’s money into your home, then you might be more inclined to call it quits if things get tough and you can’t afford your monthly repayments.

It could also be argued that if you can’t save up for or with help, make up at least a 5% deposit for a property, then you likely aren’t ready for a jump into the property world.

Can the government pay the deposit for me?

Directly, no they are not able to do this. That being said, if you can find 5% of the deposit from your own funds, then there is still a chance you could qualify for the government’s Help to Buy Equity Loan Scheme.

With this scheme only applying only to new build properties, the concept is that you put in 5% and the Government loans you up to 20%, making up a 25% deposit.

After 5 years you need to start looking at paying the equity loan back possibly by way of a remortgage or from savings you have been able to make over the length of time that has elapsed since the start of your term.

Is a 5% deposit enough?

Generally speaking, yes 5% is enough for the majority of mortgage types. It does vary between lender though and some will accept only a 5% deposit, limiting the paths you can take.

To combat this, you will normally need a reasonable credit score to qualify for a mortgage in Halifax. There are the odd lenders out there that may consider you for a 95% mortgage with an average credit score, but the rate of interest would also be higher than other mortgages.

How much do I need to put down if I have a poor credit history?

Most specialist lenders will require at least 15% deposit if you have a less than favourable credit history. As touched upon earlier in this article, this is simply to reduce their risk in the event of a repossession.

It is a lot harder to obtain this type of mortgage than it was in the mid-2000s but in some cases may still be a possibility.

How much deposit do I need for a Buy-to-Let property?

It has always been a requirement to put down a larger deposit for Buy-to-Let Mortgages in Halifax and most lenders at the moment are looking for around a minimum of 25%.

Can I take out a loan for the deposit?

Technically this could be possible, but almost all lenders will not allow this, as essentially this would still be 100% lending, which no longer exists due to the aforementioned risk involved with this type of deal.

Can someone gift me a deposit?

Yes, this happens all the time. Generally, it’s what the industry affectionately has titled the “Bank of Mum and Dad” (both birth and adopted parents, as well as carers & legal guardians) gifting the deposit, or other members of your family, such as Aunties & Uncles.

We have even seen cases where family friends are allowed to gift money too. These are all valid options, as long as they can evidence the funds, prove who they are and confirm they are not expecting you to pay them back at any point in the future.

Are there any circumstances where I don’t need a deposit?

If you are looking at buying as a sitting tenant and your landlord or family member has given you a discount from the open market value, or if you qualify for a discount under the Right to Buy Mortgage Scheme, then normally you won’t be required to put any of your own money in as deposit.

This is due to the equity being already “built-in” to the deal that is being made.

Please note that the above information and guidance is for reference purposes only and is not to be viewed as personal financial or mortgage advice.

10 Factors to Help you Decide Where to Live in Halifax

Analysing Common Home Buyer Needs

First and foremost, one of the key factors that people look to when considering moving in or to Halifax in search of their dream home, is the location.

Often though it’s about more than just where, but also what is there and what you look to prioritise when deciding on what may be the perfect home.

To help you in your quest, we have put together a comprehensive list of the things many home buyers consider when looking to decide where to live.

1. Busy city or relaxing countryside?

It is important to figure out the type of setting you would like to live in, as this is somewhere you are going to live for at least a good few years, potentially even starting a family there.

If you’re the sort who likes thriving urban settings, the city life is definitely for you. If you prefer peace & quiet, being out of the way of others, you may be better suited for country life.

There are pros and cons to either of these options, so it is worth carefully thinking about before you get your heart set on a home in an area you perhaps won’t enjoy.

2. Transport Links

Transport links are a very important factor to many. Make sure whether it’s for hanging out with friends/family, your chosen profession, shopping and other general leisure activities, that your home has the appropriate transport.

Also make a note of how much these modes of transport are going to cost. If you are a driver, how long is it going to take you to travel to your different destinations? What will fuel costs be and do you have nearby stations to refill at.

3. Schools & Education

For those of you who are parents, definitely check what schools are in the area. Research what the local catchment areas are for the homes you looking at, so you can see what the schools are like. School league tables are a good source of information for this.

For those of you who may not have any children now, whether you have a plan to have kids or not, it’s best to at least have a look to future proof yourself.

4. Nearby Facilities – What You Need Vs What You Want

You may have a couple of different ideal nearby facilities in mind when planning for where to live. A helpful tip would be to make a note of which ones are necessary and which ones are just your preference.

For example, you may really want to have a gym nearby but also need a shop nearby for all your general needs. If you’re debating two areas and each only have one of those facilities, you’ll probably lean more towards the one with the shop.

5. Friends and Family

For a lot of those looking to find their new home, having friends and family nearby can be an important factor. This is generally preferred as they can live comfortably knowing they have a support network close to them.

On the other hand, some prefer a solitary life, prioritising peace and quiet over regular social activity.

6. Is the property good value for money?

Finding that property that you feel is worth the money you’ll be paying for it can be dependent on the area that you are looking to buy in.

You ideally want to make the most out of your property purchase, so it may be worth your while finding somewhere cheaper as a starting property, though this might mean compromising features and facilities you may have wanted initially.

7. What is the community like?

The local community can have an impact of your experience living in your home. You might prefer the quiet life, with a selection of residents who keep to themselves, or you may prefer a thriving busy community where everyone knows each other.

Speak to the estate agent and find out what it is like around that area. Community Facebook pages or locally run websites are common occurrences, so they’re worth looking up to get a general feel for what it may be like.

8. Career Changes

You may be moving home due to a new job or to kickstart a career. This is a huge factor we have heard from many customers in the past. It’s important to take a look at the distance between your new workplace and your new home.

If you’re going to be mostly working from home, is a longer commute for the few times you do go into the workplace something you’d be okay with, can you live further out? What about the space inside the property, will there be room for a home office?

For those who are looking at job hunting, do some research on the types of companies within the area and make a list of who all the top employers are.

9. Property Type

In terms of the types of property available, home buyers will find a good selection on the open market to choose from. Some prefer end-terrace properties that have a nice garden, some prefer modern apartments within the city limits.

Check out all the options available to you, undertake some viewings and get a good feel for the type of property you are after.

10. Local Developments

Any potential investment that has been proposed within the local area can be handy information to get ahold of, especially if you’re looking to live there for a while and settle down.

Online research will serve you well here when looking to find any future investments in the local area. It’s important to consider if these will be beneficial to you and your lifestyle.

For example, those who would prefer to have a quiet life in the countryside might find their ideal living situation being impacted by a potential nearby housing development being planned.

Moving Home Mortgage Advice in Halifax

By now you’ll hopefully have a good list of factors to look out for in the quest for finding your perfect home location. When the time comes for making offers and obtaining a mortgage, feel free to get in touch to book a free mortgage appointment.

Our dedicated mortgage advice team are here from morning until late evening, seven days a week, subject to availability. Whether you’re in need of help with a first time buyer mortgage in Halifax or are moving home in Halifax, we’d love to get the ball rolling on your mortgage process.

Gifted Deposit FAQ’s | Mortgage Advice in Halifax

What is a gifted deposit?

A gifted deposit is the name given if someone were to bequeath unto you either a portion of or the full amount of the deposit. This has to come with an agreement between the two parties that this is not to be paid back as a loan.

How do gifted deposits work?

Gifted deposits are very beneficial for instances where perhaps you are financially capable enough to afford your monthly mortgage repayments but are struggling to find the means to afford the initial deposit, be that because of a lower salary or otherwise.

Depending on the amount you are gifted, you may open yourself up to potential better rates from the mortgage lenders, as the more that goes down initially, the less you’re having to pay back overall.

Who can gift the deposit?

For the most part we find that it is an applicants’ parents who are able to gift you the deposit. This applies to both natural-born and adopted parents, being referred to across the mortgage world as the “Bank of Mum & Dad”.

Depending on the lender that you go with, you may also be able to receive a gifted deposit from another family member, maybe even from a friend. Finding the right lender who would accept this would require care and is where a mortgage advisor can help.

Sometimes, if the person helping you is aged 55 or over, they may have the potential option of gifting you a deposit by utilising Equity Release in Halifax.

Do your parents understand that you need additional help?

It often becomes apparent that customers don’t always realise that their parents have the ability to help with their mortgage. In other cases they may not believe that their parents would be willing to help, so don’t ask them.

What we actually find, is that the majority of parents are always willing to provide their children with financial support if they can, wanting to help them find a means of owning their dream home that they one day might start their own family in.

Taking out a mortgage, to many people, is a much preferred option to living in a rental property. This is because you may potentially be able to pay less money to your mortgage than you would’ve with rent.

With this comes a point mentioned earlier, wherein the more you are gifted, the less you are borrowing and the less you have to pay back overall. If you’re paying less back over a longer term, your monthly payments will be greatly reduced.

The deposit that you are gifted can sometimes come from inheritance, although there have been instances where parents have gifted it to their children earlier on in life, especially if they have already saved enough or have released any equity.

Gifted Deposit vs Loans

Pretty much all lenders won’t accept a loan as a way for you to pay off your deposit. This is because they won’t have the confidence that you would be able to afford payments for both the loan and the mortgage at the same time.

Is there a maximum or minimum gifted amount?

You are not limited in the amount that someone will be able to gift you, though there are some lenders out there that insist on applicants having at least 5% from their own funds.

Who could benefit from a gifted deposit?

The types of applicants who benefit the most from having a gifted deposit are First Time Buyers in Halifax and Home Movers in Halifax.

Gifted deposits can also be incredibly helpful when used alongside the Help to Buy Scheme, as depending on the lender, the 5% required deposit for the scheme can be paid via gift.

What proof is required?

As a rule, all lenders will require you to fill out a gifted deposit form. Some lenders will also want you to provide additional proof and ID (things like donor ID or bank statements).

What is a 95% Mortgage?

A 95% mortgage is as simple as the name would suggest; you are borrowing against 95% of the price of a property, and then you are covering the remaining 5% with your deposit. An example of this is if you looked at buying a property that was worth £150,000 with a 95% mortgage, you would be putting down £7,500 as your deposit and borrow the remaining £142,500 from the lender. 

95% Mortgage Advice in Halifax

Off the back of the March 2021 Budget, Boris Johnson announced a Mortgage Guarantee Scheme for mortgage lenders, making 95% mortgages more readily available from the bigger high street banks.   

This is fantastic news for First-Time Buyers and Home Movers alike, as this scheme will continue running until December 2022. Certain terms and conditions will apply though, which is something your Mortgage Advisor in Halifax will be able to look at, to see if you qualify.    

All our customers who opt to Get in Touch will receive a free, no-obligation mortgage consultation where one of our dedicated mortgage advisors will be able to make a recommendation on the best possible route for you to take.

Can I get a 95% mortgage?

95% mortgages are usually accessible by both First Time Buyers in Halifax & those who are Moving Home in Halifax. Whilst saving for a 5% deposit sounds like a pretty straightforward concept, you’ll still need to have an acceptable credit score and prove that you are able to afford your monthly mortgage repayments, in order to access a 95% mortgage.

Improving your credit score

A good credit score is essential in the process of obtaining any mortgage, especially a 95% mortgage. Things like paying any current credit commitments on time, ensuring your addresses are updated and checking that you’re on the voters roll, can all help with your credit score.

Affordability 

Affordability is another one that is important to take note of. By giving the lender details of your income and monthly outgoings (things like your bank statements will be necessary for this) and any pre-existing credit commitments, your lender will be able to get a general overview of whether or not you are able to afford this type of mortgage.

Can my family help me get a 95% mortgage?

Nowadays we see lots of family members helping each other get onto the property ladder, especially parents looking to further their children’s lives. The way this usually happens is by gifting the person looking to find their home, the deposit required. Known through the industry as the “Bank of Mum & Dad, Gifted Deposits are only intended to be a gift, and not as a loan. The lender will need proof that this has been agreed, before it can be used towards your mortgage. 

How do I choose the right 95% mortgage?

When looking for a 95% mortgage, you want to make sure you have the right type of mortgage. Each mortgage type works differently, with that choice allowing you to find one that is most appropriate for your personal and financial situation. 

Some homeowners and home buyers prefer Fixed Rate or Tracker Mortgages, mortgage types which mean you either keep interest rates at a set amount for the term given or have your interest rates tracking the Bank of England base rates.

Alternatively, you might find that Interest-Only or a Repayment Mortgages are more your style. Interest-Only allows cheaper payments until you need to pay a lump sum at the end (mostly now used for Buy-to-Lets), whereas a Repayment mortgage (a normal mortgage if you’d like) means you’ll be paying interest and capital combined per month.

How can a bigger deposit help with my mortgage? 

Seeing as a mortgage is such a large financial outgoing, you need to be prepared and need to be aware. You might find things like higher interest rates, remortgaging difficulties due to less equity and then negative equity all cropping up if you’re not. 

There is no need to worry though, as all these can be avoided if you’re savvy enough with your process to begin with. The more deposit you put down for a property, the less risk the lender will see you as. 

A larger deposit, of say 10-15%, would not only reduce the rates of interest by a noticeable amount, but would also give the property more equity and reduce the risk of negative equity, thanks in part to you borrowing less against the property. 

So, whilst the risks may seem intimidating, planning ahead and saving for a bigger deposit to access something like a 90% or even an 85% mortgage will be a massive help in your mortgage journey and something you’ll be able to reap the rewards from in the future. 

Halifaxmoneyman Spring Budget 2021 Update

Rishi Sunak’s second Budget as Chancellor brought two pieces of welcome news for the property sector as the Government attempts to transform “Generation Rent” into “Generation Buy” to help stimulate the UK economy, namely the new 95% Mortgage Guarantee and an extension of the Stamp Duty Holiday.

95% Mortgage Guarantee

The name of this scheme is misleading as not everyone that applies is guaranteed to be offered a mortgage, it is still subject to affordability and credit score. The “guarantee” itself is that the Government will ensure Lenders don’t stand a loss if they grant a 95% mortgage to a customer who then subsequently falls into arrears and is repossessed leaving behind negative equity.

This scheme should in theory give Lenders more confidence to lend even though the applicant only has a smaller deposit to put down. Of course, Lenders never want to repossess someone’s home unless it is the last resort, but if that happens then the new scheme would cover any shortfall.

Lenders have been worried about the prospect of home values decreasing so this measure should alleviate that concern although of course, the chances of negative equity occurring will naturally reduce should property prices increase as a result of these announcements!

The scheme is available to both 1st Time Buyers and Home Movers, it’s available on any property (not just new build) and will run until December 2022. Some major High Street Banks have already signed up to the scheme and it’s likely more will follow later on. It’s still a big challenge for Lenders to cope with the demand they are getting for mortgages due to the difficulties training and supervising staff working from home but they will want to offer as many of these mortgages as they can.

Stamp Duty Holiday Extension

When the Stamp Duty Holiday was launched last year we all hoped life would be very much back to normal by the cut-off date of 31st March 2021 but things didn’t pan out that way as we know. Solicitors are struggling to keep up with the workload and if lots of chains had collapsed then it would have partly defeated the object of the exercise.

Therefore it was good to hear the scheme has been extended to 30th June for purchases up to £500,000 and 30th September for purchases up to £250,000.

The Government certainly sees the property sector as an area that can play a big part in our economic recovery and if you are looking to buy a home or remortgage this year please reach out and we will be happy to advise you.

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